IMF Country Report No. 18/258 NAMIBIA TECHNICAL ASSISTANCE REPORT—ASSESSING AND August 2018 MANAGING FISCAL RISKS FROM STATE-OWNED ENTITIES AND PUBLIC-PRIVATE PARTNERSHIPS This Technical Assistance report on Namibia was prepared by a staff team of the International Monetary Fund. It is based on the information available at the time it was completed in January 2018. Copies of this report are available to the public from International Monetary Fund • Publication Services PO Box 92780 • Washington, D.C. 20090 Telephone: (202) 623-7430 • Fax: (202) 623-7201 E-mail: [email protected] Web: http://www.imf.org Price: $18.00 per printed copy International Monetary Fund Washington, D.C. © 2018 International Monetary Fund FISCAL AFFAIRS DEPARTMENT Namibia Assessing and Managing Fiscal Risks from State Entities and Public-Private Partnerships Carolina Renteria, Isabel Rial, Avril Halstead, Katja Funke, and Malcolm Pautz Technical Assistance Report March 2018 CONTENTS ACRONYMS ..................................................................................................................................... 5 PREFACE .......................................................................................................................................... 6 EXECUTIVE SUMMARY ................................................................................................................... 7 I. FISCAL VULNERABILITY IN NAMIBIA ...................................................................................... 12 A. Background.............................................................................................................................................................. 12 B. Fiscal Risks Analysis and Management ......................................................................................................... 13 C. Namibia: Early Stages of Fiscal Risk Management ................................................................................... 16 II. PUBLIC ENTITIES AND FISCAL RISKS ..................................................................................... 18 A. Background.............................................................................................................................................................. 18 B. Assessing and Reporting on Fiscal Risks from Public Entities .............................................................. 20 C. Supporting Legal Framework and Institutional Arrangements within Government ................... 25 D. Supporting Institutional Arrangements within the Ministry of Finance .......................................... 28 E. Supporting Budgeting, Accounting for and Reporting on Public Entities ....................................... 29 III. PUBLIC-PRIVATE PARTNERSHIPS AND FISCAL RISKS ........................................................ 33 A. Background.............................................................................................................................................................. 33 B. Establishing a Framework to Manage PPPs Fiscal Costs and Risks .................................................... 36 C. Strengthening Supporting Institutions ......................................................................................................... 44 TABLES 1. Summary of Recommendations.............................................................................................................................. 9 2. Key Indicators of the PE Sector ............................................................................................................................ 19 3. The Attribution of PEs in the Sectors of the Economy ................................................................................ 30 4. PPP Porfolio ................................................................................................................................................................. 34 5. Fiscal Costs and Risks Arising from PPPs .......................................................................................................... 34 6. Assessing Fiscal Costs and Risks from PPPs .................................................................................................... 39 FIGURES 1. Costs of Fiscal Risk Realizations ........................................................................................................................... 14 2. Liabilities of Non-Financial Public Corporations ........................................................................................... 19 3. Initial High-level Risk Assessment of PEs with Largest Liabilities ........................................................... 20 4. Two-Step Process for Assessing Fiscal Risks from PEs ................................................................................ 22 5. Framework to Guide Risk-Based Monitoring and Management of PEs ............................................... 24 6. Illustrative Integrated PPP Appraisal and Approval Process ..................................................................... 48 3 BOXES 1. Outline of a Comprehensive Fiscal Risk Statement ...................................................................................... 15 2. Macroeconomic, Fiscal Policy and Financial Risks Identified in Article IV and FSAP ....................... 17 3. Terminology ................................................................................................................................................................. 18 4. Key Indicators for Conducting an Initial, High-Level Assessment of Financial Soundness of PEs ....................................................................................................................................................................................... 23 5. Structure of Georgia’s PEs Section of a Fiscal Risk Statement ................................................................. 24 6. Role of the MoF in New Zealand ......................................................................................................................... 27 7. Quasi-Fiscal Activities ............................................................................................................................................... 31 8. Budgeting for long-term PPP Commitments.................................................................................................. 42 ANNEXES I. Matrix of Prioritized Actions ................................................................................................................................... 51 II. Illustrative Example of a Fiscal Risk Statement ............................................................................................... 52 III. Managing Contingent Liabilities in Colombia .............................................................................................. 63 IV. Accounting for PPPs: IPSAS32 ............................................................................................................................. 65 V. PFRAM: Summary Description ............................................................................................................................. 67 VI. Chile: Assessing Fiscal Costs and Risks from PPPs ...................................................................................... 71 VII. PPP Ceilings: International Experience ........................................................................................................... 72 VIII. Colombia’s Budget Commitments to PPPs through "Vigencias Futuras"........................................ 74 4 ACRONYMS ACDM Asset, Cash and Debt Management CL Contingent Liabilities COM Council of Ministers CSP Concentrated Solar Power DBM Development Bank of Namibia FAD Fiscal Affairs Department FRS Fiscal Risk Statement GFSM Government Finance Statistics Manual IFRS International Reporting Financial Standards IMF International Monetary Fund IPSAS International Public Sector Accounting Standards NDP5 Namibia’s 5th National Development Plan MoF Ministry of Finance PC Public Corporations PE Public Entities PFRAM PPP Fiscal Risks Assessment Model PPP Public Private Partnerships PSDG Public Sector Debt Guidelines for Users RISDP Regional Integrated Strategic Development Plan SADC Southern African Development Community SACU Southern African Customs Union TA Technical Assistance UNAM University of Namibia 5 PREFACE At the request of the Ministry of Finance (MoF) of Namibia, a mission of the IMF’s Fiscal Affairs Department (FAD) visited Windhoek during January 17–31, 2018 to analyze main source of fiscal risks, notably Public-Private Partnerships (PPPs) and Public Entities (PEs), and advise on options for better monitoring, managing and reporting these risks. The mission was led by Carolina Renteria (FAD Division Chief) and included Isabel Rial, Avril Halstead (all FAD), Katja Funke, and Malcom Pautz (external experts). A workshop to present international experiences on managing fiscal risks, with special focus on PPPs and PE, was delivered to a broad range of public officials of the Ministry of Finance, Ministry of Public Enterprises and a number of large PE; training in the use of the IMF-World Bank PPP Fiscal Risk Assessment Model (PFRAM) and a two-step methodology for assessing the likelihood of fiscal risks materializing from PEs, was provided to pertinent staff members. During its stay, the mission met with Mr. Carl HG Schlettwein Minister of Finance, Ms. Ericah B. Shafudah Permanent Secretary of Finance, Andreas Penda